Private Media Group Reports on First Quarter 2011 Results and Comments on the Business Going Forward

BARCELONA, Spain, June 10, 2011 /PRNewswire/ -- Private Media Group, Inc.(NASDAQ: PRVT), a worldwide leader in premium-quality adult entertainment products today announced its results for the three-month period ended March 31, 2011.

For the three months ended March 31, 2011, we had net sales of EUR 5.4 million compared to net sales of EUR 6.4 million for the three months ended March 31, 2010, a decrease of EUR 1.0 million. Internet sales decreased EUR 0.3 million to EUR 3.6 million, which represents a decrease of 9% compared to the same period last year. The reduction in Internet sales was primarily attributable to a decrease in sales from the gay content division. Broadcasting sales decreased EUR 0.1 million to EUR 0.9 million, which represents a decrease of 5% compared to the same period last year. Wireless sales decreased EUR 0.2 million to EUR 0.3 million, which represents a decrease of 37% compared to the same period last year. DVD & Magazine sales decreased EUR 0.4 million, or 42%, to EUR 0.6 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales. Going forward, we expect Internet, wireless and Broadcasting sales to increase; see comment on the business going forward below.

Our cost of sales was EUR 3.4 million for the three months ended March 31, 2011 compared to EUR 4.3 million for the three months ended March 31, 2010, a decrease of EUR 0.9 million, or 22%. Included in cost of sales is Internet, broadcasting and wireless. printing, processing and duplication and amortization of library. Internet cost was EUR 2.0 million for the three months ended March 31, 2011 compared to EUR 2.4 million for the three months ended March 31, 2010. Internet cost as a percentage of related sales in the period was 56% compared to 62% in the same period last year. The decrease of EUR 1.0 million was primarily the result of reduced sales and reduced website amortization as a result of an old website which was decommissioned in May 2010. There was no broadcasting and wireless cost for the three months ended March 31, 2011 compared to EUR 0.1 million for the three months ended March 31, 2010. The reduction in cost was due to the reversal of provisions for expected cost. Printing, processing and duplication cost was EUR 0.3 million for the three months ended March 31, 2011 compared to EUR 0.5 million for the three months ended March 31, 2010, a decrease of EUR 0.2 million, or 40%. The decrease was primarily a reflection of the decrease in sales. Printing, processing and duplication cost as a percentage of DVD & Magazine sales was 48% for the three months ended March 31, 2011 compared to 47% in the same period last year. Amortization of library was EUR 1.1 million for the three months ended March 31, 2011 compared to EUR 1.3 million for the three months ended March 31, 2010, which represents a decrease of EUR 0.2 million. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years.

In the three months ended March 31, 2011, we realized a gross profit of EUR 2.0 million, or 37% of net sales compared to EUR 2.0 million, or 32% of net sales for the three months ended March 31, 2010. The increase in gross profit as a percentage of sales was primarily the result of reduced amortization of library and websites.

Our selling, general and administrative expenses were EUR 2.9 million for the three months ended March 31, 2011 compared to EUR 3.1 million for the three months ended March 31, 2010, a decrease of EUR 0.2 million, or 8%. The decrease was primarily the result of reduced payroll and depreciation by EUR 0.5 million and EUR 0.1 million, respectively. The decrease was offset by increased legal expenses and bad debt provision.

We reported a loss of EUR 1.0 million for the three months ended March 31, 2011, compared to EUR 1.2 million for the three months ended March 31, 2010. The reduced loss was the result of reduced selling, general and administrative expenses.

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: "During the past two years, we have developed Internet solutions for critical new markets: gay, international and mobile. Furthermore, as a response to decreased margins in the adult entertainment industry, we have reviewed, analyzed and continued to restructure the operations of the non-online part of the business in order to become more cost effective. The 2009 acquisitions of GameLink and Sureflix have also presented a challenge in terms of integration. All the aforementioned processes have had impact both in terms of lost sales and additional selling, general and administrative expenses. However, as part of these processes, during 2010 we reduced our workforce by 34% from 168 to 112 employees and we expect to continue this process as we become more efficient and enjoy economies of scale from the aforementioned acquisitions. In 2011, we are starting to benefit from the restructuring and will continue to reduce costs while increasing sales as we implement, launch and market new initiatives."

"As part of our digital strategy, we have established that the combination of Private with major online retailers and accomplished platform developers is the approach to achieving our goals in the rapidly changing business landscape. The combined content assets of Private and core competencies of GameLink and Sureflix offer a compelling new business model. We will be expanding our joint Internet strategies globally with additional formats and applications to be launched in 2011. Currently we are reformatting and migrating all content on the GameLink VOD platform to a Content Delivery Network (CDN) and we expect this to enhance the user experience substantially and therefore improve both conversion and retention rates in general, but particularly in eastern North America and in Europe. This is a paramount initiative which is expected to increase sales significantly and also make it possible to expand our cooperation with affiliates worldwide. In addition, this initiative is crucial for the development and distribution of apps which will enable consumer access from the growing market of SMART TVs. The completion of the CDN initiative is expected to take place in the second half of 2011. In addition, during 2011 we will continue to aggressively market our recently launched cutting-edge Internet assets discussed below."

"In May 2010, we launched our new private.com membership platform. The new platform features a number of proprietary sites and it is also available as a white label(1) version, which we expect will attract adult content providers and affiliates worldwide. In addition, the new platform has been built to be substantially less labor intensive to operate compared to the old one. The new platform also has improved conversion rates and attracts more traffic. During the three months ended March 31, 2011 the new membership pay-site attracted 4.3 million unique visitors, which represents an increase of 80% compared to the old one in the same period in 2010."

"In April 2010, GameLink launched a proprietary mobile solution enabling users to instantly stream over 15,000 movies. The platform is available to Smart Phones at the url: www. gamelink.com. The mobile Internet platform allows consumers to purchase and consume content instantly. All content is available for future viewing in the customer's virtual media center, stored in the company's "cloud". The platform has been optimized to work with Apple devices including the iPhone, iPod, the iPad as well as Android devices. Furthermore, in 2010, Apple's OS upgrade to iOS4.3 for iPhones, iPads and iPod touches made it possible to watch GameLink's mobile library on Apple TV by allowing users to redirect content streaming from those devices to their Apple TV. In addition to streaming, consumers can choose to download their movies or purchase DVDs and novelties from the globally accessible platform. A white label version of the mobile platform is available and is being marketed to adult studios and affiliates worldwide. Our objective is to become the main provider of an off-portal mobile platform solution to all major content providers in our industry. In contrast to Private's existing mobile content business, which is based on an on-portal model going through content aggregators and carriers, this new business is off-portal and provides substantially improved margins as content is sold directly by ourselves to the consumer. Our weekly sales for the GameLink VOD mobile solution has been steadily increasing since its launch and current weekly sales represents a USD 1.0 million twelve-month run rate. In August 2010, Sureflix introduced mobile VOD on its existing platform for its Maleflixxx network of hundreds of sites. The new mobile platform, Maleflixxx Mobile, allows consumers to view gay content on all mobile devices, including the iPad, iPod Touch, iPhone and Android handsets. Furthermore, in Q4, 2010, we released a number of Smart Phone apps with an end to increase traffic to our mobile assets. With the Smart Phone market growing rapidly(2), we expect to generate substantial growth from our mobile VOD initiatives going forward."

"With respect to broadcasting, we are continuing to implement our media growth strategy across all delivery systems, including: DTT, satellite, cable and IPTV. Private content is currently broadcasted via 194 platforms in 42 countries. While European broadband users are signing up for IPTV services in the hundreds of thousands each month, making Europe the biggest and fastest growing IPTV region in the world, we have successfully implemented part of our new media strategy and contracted for supplying content for VOD services to a total of 26 major platform operators in 18 countries in the region. During 2010 the European IPTV market grew by 25% to 20.7 million IPTV subscribers(3) and by the end of the year we had more than 75% market coverage. France remains the "world champion" IPTV country with 10.3 million subscribers and we cover 100% of this market. Furthermore, it is forecasted(4) that the number of global IPTV subscribers will grow from 44 million at the end of 2010 to 111.5 million in 2014, a compound annual growth rate of 26%. The forecast shows that Europe will be the regional leader, with 42% of the worldwide IPTV subscribers total in 2014. In relation to Private branded TV channels carrying our content in Europe and Latin America, our partners Playboy TV International and Playboy TV Latin America continue to improve distribution. In 2010, the Private Spice agreement with Playboy TV International was renewed for another five years. The channel is receivable in all of Europe and it currently has distribution in 22 countries via 101 cable, satellite, DTT and IPTV platforms. During the past twelve months, Playboy TV Latin America continued to increase the distribution of the Private Channel. The channel is receivable in all of Latin America and it currently has distribution in 19 countries via 63 cable, satellite and IPTV platforms and reaches 38 million platform subscribers. Going forward, we expect to grow our broadcasting distribution both on existing and additional platforms that are using any available technology."

"Private's mobile "on portal" revenues declined in the first quarter of 2011 and the main reason for the decrease is that this business is migrating to "off portal" and is included in our Internet sales where these sales are increasing. We expect this trend to continue with the increased penetration of Smart Phones. Whether it is on or off portal, the growing use of Smart Phones, the introduction of Mobile VOD and TV, and the implementation of age verification systems offer additional growth potential for the combined markets in 2011 and beyond(5)." Mr. Gillborg concluded.

Financial Highlights

NOTES TO THE EDITOR:

Footnotes

1. A white label product or service is a product or service produced by one company that other companies rebrand to make it appear as if they made it.
2. According to Parks Associates report of March, 2010, "Smart Phone: King of Convergence": the number of Smart Phone users is expected to quadruple, exceeding 1 billion worldwide by 2014.
3. According to Point Topic's report of March, 2011, "IPTV Q4 2010 Short Report."
4. According to MRG's IPTV Global Forecast (December 2010).
5. Juniper Research estimates in its 2010 study 'Mobile Adult Strategies: Downloads, Video Chat, Apps & Messaging 2010-2015.' that global revenues from all mobile adult services will rise from $1.7 billion in 2009 to $2.8 billion by 2015.

About Private Media Group

Founded in 1965, NASDAQ listed Private Media Group is a brand-driven world leader in adult entertainment, operating a global content distribution network with a wide range of platforms including; the Internet, broadcasting via cable, satellite, digital TV and IPTV on 194 platforms in 42 countries, mobile content delivery via 114 network operators in 37 countries and retail sale of DVDs and magazines. Private Media Group owns the worldwide rights to its extensive archive of high-quality content, and also licenses its Private and "Silver Girls" trademarks internationally for a select range of products and services. Private is the world's preferred content provider of adult entertainment to consumers anywhere, at any time and across all distribution platforms and devices.

Corporate site: prvt.com, consumer site: private.com

Disclaimer

This release contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company's current judgments of those issues. However, because those statements are forward-looking and apply to future events, they are subject to such risks and uncertainties, which could lead to results materially different than anticipated by the Company.

For further information please contact:
Johan Gillborg
Chief Financial Officer
Private Media Group
Tel +34 93 620 80 90
[email protected]

SOURCE Private Media Group